The deadline for providing eligible employees written notice of your Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)—for new plans or existing ones—is right around the corner for most 2021 plans (we say “most” here because while QSEHRA plans don’t technically have to start on January 1st, most tend to). The notice requirement might seem like a small thing, but overlooking it could cost you $50 per employee, up to a total of $2,500 per year.
Here’s what you need to know.
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The legal requirements
According to IRS guidance, an employer that offers QSEHRA must provide each eligible employee a written notice at least 90 days before the beginning of each year. Employees who won’t yet be eligible at the beginning of the year must receive the notice on or before the date they become eligible for the plan.
The notice needs to contain the following information:
1. The permitted benefit for the year.
The permitted benefit is the maximum amount of payments or reimbursements that you will offer the employee for the year.
If the amount varies from employee to employee based on the age of covered individuals or the number of individuals covered, you can provide each available permitted benefit or just the permitted benefit for which the particular employee is eligible. In other words, you can use a general template for every eligible employee that lists all possible permitted benefits, or you can tailor the notice to each employee’s specific eligibility.
When an employee becomes newly eligible during the plan year, the notice must include the date that the QSEHRA is first provided to them. It also must include the prorated permitted benefit for which the employee is eligible or the information necessary to compute the prorated amount (for example, the permitted benefit amounts and the first month the employee will become eligible to participate).
Again, it’s a choice between using a tailored notice for each newly eligible employee or a general template that works for every newly eligible employee.
2. Statement of duty to inform Health Insurance Marketplace.
You must advise employees that, if they apply to a Marketplace for advance payments of the premium tax credit (PTC) under the Affordable Care Act, they’re required to inform the Marketplace of the amount of the permitted benefit.
The notice also should explain that the amount of the permitted benefit may affect the employee’s eligibility for, and amount of, any PTC. And it should instruct the employee to hold on to the notice in case they later need it to calculate the PTC on their individual income tax return.
3. Minimum essential coverage requirement.
The notice must include a statement that, if the employee doesn’t have minimum essential coverage (MEC) for any month, reimbursements made under the QSEHRA for expenses incurred in the month will be includible in their gross income.
The IRS guidance also indicates that the notice should state that an employee who doesn’t have MEC for any month could be liable for an individual shared responsibility payment. The Tax Cuts and Jobs Act eliminated those payments for years after 2018, but, to cover your bases, you probably still should include such a statement.
Optional but recommended information
The information outlined above is mandatory, but the notice can include other information, too—as long as it doesn’t conflict with the required information.
This is an opportunity for you to make your case to employees who may believe more traditional health care coverage is preferable. So, for example, you can add text explaining why you’ve opted to go the QSEHRA route and the advantages it gives them. You also might outline or remind employees how the program works.
Electronic notices are fine
You can provide the QSEHRA notice electronically as long as you satisfy IRS requirements. Among other things, that means:
- The system you use to send the notice must be “reasonably designed” to provide the information in a manner that’s at least as understandable to the employee as a written paper document.
- The system must be designed to 1) alert the employee about the significance of the information in the notice, and 2) provide any instructions necessary to access the notice in a readily understandable way.
You also need to obtain the employee’s consent to receive notice electronically.
QSEHRA employee notice template
Below is a template you can use to provide the requisite notice to currently eligible employees.
There are four spaces you must fill out in the second paragraph. Here is how you should fill these out:
Your permitted benefit for YEAR is AMOUNT if you have self-only coverage or AMOUNT if any members of your family also have coverage. (These amounts are prorated by month if you are not eligible on the first day of the plan year.) Your permitted benefit applies to medical expenses incurred on or after DATE (the first day of the plan year, typically January 1) .
For employees hired after the beginning of the plan year, you can use the same written notice as above, simply replacing the last sentence of the second paragraph with:
Your permitted benefit applies to medical expenses incurred on or after DATE (this is the newly eligible employees initial eligibility date) .